Global Head of Fund Sales
Exposing your business to outside thinking can help it grow and retain staff, while alternative asset managers can benefit from bespoke outsourcing solutions
Outsourcing has become more strategic and valuable over the past few years – with developments such as CFO-outsourcing and other high skill, clearly targeted options. But there is still a closed community of managers who could benefit from embracing outside counsel.
“Outsourcing” was once a dirty word, with companies preferring to do everything in-house. Only menial tasks tended to be outsourced.
Now many firms work collaboratively with outsourcing specialists, solving challenges and finding bespoke solutions and hybrid models. Increasingly entire roles can be outsourced, such as chief financial officer (CFO) or middle-office functions.
Outsourcing isn’t just about giving a task to someone else; it’s about getting a better outcome. It can help retain staff, a trend accelerated by increased working from home.
Here are some ways outsourcing could help your firm no matter what its size or stage in the business cycle:
- Using internal resources more effectively, making it easier to retain talent
- Creating scalability for the organisation
- Alleviating the ‘heavy lifting’ for key roles in accounting and regulation
- Better handling time-consuming data requests
- Providing specialist expertise to enhance data quality and availability
- Meeting the challenges of diversification, such as investing in private credit
Outsourcing helps talent work more effectively
Managers often buy technology that only fulfils 80% of their needs. So you have employees managing complexity outside of spreadsheets, which can be very time-consuming. Staff may work late into the evening, which isn’t a good use of their time, or good for morale.
If we are to believe that the pandemic is moving us towards a different business model, what we’ve seen is that employees can’t just stay in their (home) office until 8pm; they have commitments to their families. These staff will move jobs to get a better work/life balance.
Outsourcing can help firms utilise talent more effectively. We often talk to managers about “hands full, mind empty”. If staff are burdened with toil, they can’t be strategic thinkers. Remove some of that admin and convert your personnel from doers to reviewers, and you’ll empower them to add value to the business.
We take a consultative approach at Intertrust Group. Traditional outsourcing of simple, daily tasks could be right for one manager, while many others need to solve complex problems.
Outsourcing can suit everything from start-ups to mature managers
Launching a fund is challenging. Some start-ups shy away from outsourcing, through lack of knowledge about how it works. Others may get a third party to do specific roles, so someone else reviews the net asset value (NAV), for example. Others still may prefer not to worry about hiring a controller.
It pays to think strategically early on. Start-ups and emerging managers who think about scalability are interested in middle-office or back-office outsourcing and shadow accounting. They want to know from the outset how outsourcing can help them grow and attract more investors.
Emerging managers, say with $300m-$1bn assets under management (AUM), will be talking to institutional investors who are far more rigorous about how
any outsourcing works – who’s reconciling, who’s controlling the cash, who’s tracking the cash and so on. A robust and transparent model is key here.
Outsourcing can also assist data requests, taking responsibility from an in-house CFO who would have to assemble data from different parts of the organisation to fulfil a customised request from a single investor.
Larger, mature managers (more than $5bn AUM) historically had a “if it’s not broken, don’t fix it” attitude. Now we are talking to them about how to identify areas of concern and improve their operations (such as freeing up managers’ time with reconciliation), reassuring them that outsourcing does not mean the wholesale rip-out of an operating platform.
Different needs: from private capital to hedge fund outsourcing
Different asset classes have varying needs. For private capital, it might be the complexities of waterfall calculations and the allocation piece of the transaction; for hedge funds it could be the number of funds and managed accounts that have to be dealt with.
At Intertrust Group we see more and more hedge funds outsourcing their day-to-day transactional approach. This is partly down to more ‘work from home’. Previously they may have thought “we want this done in our office” – now if staff are doing a good job from home, it kicks off the thought process of “why don’t we give it to someone outside the company?”
In the private funds space, a hybrid model is emerging, where expertise rather than traditional fund administration is provided. Intertrust Group has a large client on the west coast of America where we add value to their systems, rather than putting their data on our platform.
Future trends in outsourcing services
Investors are piling into the credit sector, particularly into private credit. This is predicted to be the fastest growing alternative asset in the next three to five years. The unique structural and scalability challenges of investing in private credit via private equity can be met by smart outsourcing.
We’re also seeing more data aggregation, from direct investments to the private equity book to co-investments, real estate, hedge funds and managed accounts. The industry is looking at how to create meaningful portfolio views that mitigate risk and enhance returns. We expect this to continue, with managers benefiting from strategic outsourcing.
Jonathan discussed this – and more – with Frank Napolitani as part of Seward & Kissel’s Conversation Series. Learn more here.
How Intertrust Group can help
- Administration services covering funds, capital markets, private wealth and traditional corporate services
- Fund administration for private equity portfolio companies and SPV administration services
- Solutions customised and designed to meet specific client needs
- Strategic outsourcing operational transformation – helping managers evolve their businesses
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